Welcome to the Future, Same as the Past

More chop logic from our leaders, this time coming from the World Economic Forum. As the BBC reports,

“World leaders have warned that rising food prices could lead to social unrest and even “economic war”…But business leaders at the World Economic Forum rejected calls for curbs on commodity speculation.”

To summarise: Things are getting bad, but we ought not to do anything about it.

Those business leaders, and the governments that listen to them, may well have taken heart from an entire report written with much the same philosophy. The UK government’s Department of Business Innovation and Skills launched its report on the future of food and farming in which it presented its diagnosis of the current malaise in the food system, and its cure.

First, the diagnosis:

The most likely contributing factors were a steady increase in global demand, in particular due to
economic growth in middle-income countries; an increase in energy prices and regulatory changes
encouraging the conversion of agricultural land to the production of biofuels; a series of poor wheat
harvests in 2006 and 2007 in agriculturally important regions such as Australia; and a general rundown
in commodity stocks. The height of the spike was undoubtedly exacerbated by the introduction or
tightening of export restrictions by governments in some important producer countries. It has also
been argued that commodity speculation was an important causal factor, but the empirical evidence
for this is contested and does not allow the relative importance of the various factors in causing or
exacerbating the price spikes to be distinguished.

The Department for Business finds that if the banking business had something to do with the food crisis, speculators can always plausibly deny their involvement because it’s just too complicated to figure out. Instead, the British government thinks that people in India and China in 2008 suddenly started wanting more food, at just the same time as there was bad weather in a few key parts of the world. Luckily, via the excellent GroundReality, comes this helpful list of resources and analysis by Tim Wise on why speculation matters, and how it works.

Sadly, the British government seems altogether too daunted by the economics of all this, and propose instead to let business solve the problem that a pro-business economic environment has spawned. How, exactly? By letting genetically modified crops and nanotechnology produce more food than ever before. Not, of course, that this has worked terribly well so far.

Trouble is that while there are great ways to grow more, and to make sure it gets into the hands of the hungry, they’re not nearly as profitable as the current food system. They’ll require innovation and skills, of course. But they won’t be great business.

A curb on commodity speculation? Doubtful that merely the prospect of social unrest or economic war would bring that about. It will more likely take extant, vociferous and unrelenting social unrest for the Davos crowd to feel their tree rattled to a degree sufficient for them to consider such a measure.

It’s interesting to note the language used in the forum in framing the issue of food prices; words like ‘hunger’ and ‘poverty’ are nowhere to be found, as these realities are not seen to be the problem. Instead, there’s a language which betrays a fear of the ‘unwashed masses’ rising up and interrupting the smooth flowing of the high-capitalist agenda. This is the only concern: To keep the peasantry from becoming overly restless… and thereby off the backs of the high-capitalists. Whoever is eating or starving is not the point… just as long as it doesn’t get too noisy.

And must we still suffer any claims that GMOs and green-revolution technologies could ever make a serious dent in the epidemic of hunger? As Dr. Patel so often reiterates: If the only way anyone can access food is through the market, then invariably the poor will go hungry and the poorest will starve. The debate as to the efficiencies (or lack thereof) of these technologies can be but peripheral to the topic of hunger on account of this one glaring and overlooked fact.

Yes, we Westerners (especially) would love to think that there is a shiny new technology in the offing which could eradicate a blight as burdensome as hunger. And the corporations and interests that happen to be wasting public money in seeking such a purported technology are only too happy to lie to us to stoke this optimism… But all this hinges on a misguided belief that we can find technological solutions to our deepest systemic social and political problems.

I agree that the role and impact of price speculation in futures commodities markets is a conveniently complicated issue for government institutions to tackle. Because of the sheer complexity of commodities trading, international governments have bought time on closing loopholes and enforcing tighter regulations to prevent excessive price manipulation. While there is consensus amongst public and private institutions that Wall Street reform is necessary, I am surprised that many economists, including my own professor at New York University (formerly a USDA Economic Research Service employee) have been largely dismissive about the extent to which speculation contributes to rising food prices. It seems to me that this issue is so enormous and complex that it is proving very difficult to gather substantial evidence and thus, come to an opinion that can help us make better-informed policy decisions. We’re losing valuable time as long as this continues. Tim Wise hits the nail on the head in his article “Food Price Volatility: Market Fundamentals and Commodity Speculation” when he writes “we should certainly study and debate how much of the recent price volatility owes to excessive speculation and what should be done about it. But we should stop debating whether it’s a problem. The market fundamentals of commodity market speculation seem painfully clear.” The longer it takes government institutions to untangle the complex web of futures trading, the longer it will take to create solutions that are pro-business and optimize social welfare. How can we burst the government’s “ignorance is bliss” attitude and tackle this problem with vigilance and dedication?